Does Vladimir Putin really want Russia to be a less terrible place to do business? We will now find out

FOR China, joining the World Trade Organisation in 2001 was a landmark on the way to becoming a global economic powerhouse. Could WTO membership do the same for Russia? This week, after 18 years of dithering and doubts, the Duma (the lower house of parliament) voted to ratify WTO entry, in principle guaranteeing Russian products access to world markets. With Brazil, India and China already members, Russia will soon become the final BRIC in the global-trade club. This offers the country a fresh chance at industrial modernisation after two decades which started with chaotic reform and ended with spiralling corruption—and were marked throughout by perilous dependence on extractive industries.

Russia urgently needs a more diversified economy. Strong energy revenues have given it expensive tastes (eg, more defence spending). The budget deficit, excluding hydrocarbon revenues, has soared from 2% in 2007 to 10% in 2011. The government now needs oil to be above $110 a barrel to balance its books; it has slipped below $100. Russia’s gas-export revenues are already under threat from the world gas glut caused by the success of new “fracking” technology (see our special report this week). New sources of oil compound the trouble.

Before the 2007-08 financial crisis, Russia’s economy was growing at around 7% a year. Rising demand for its oil, gas and metals meant ever more revenue gushing into the treasury. The view in the Kremlin was that Russia need not worry about manufacturing—at least the non-military bits—since energy and mineral revenues would finance a leap into a services-led “new economy”. Swathes of the country’s industrial base, never terribly competitive but with plenty of potential if properly exposed to the rigours of world markets, were left to rot.

The economy’s jolt into recession in 2009, when it shrank by almost 8%, forced a rethink. Russia’s leaders began listening to those who argued that neglecting manufacturing had been a mistake. President Vladimir Putin now promises that his new factory-friendly policies will create 25m skilled jobs. If he is serious about that, he will have to abandon the crony capitalism that has enriched so many of his friends.

It takes WTO to tango

With a population of over 140m and rapidly rising consumption, Russia’s domestic market could form a solid foundation for its manufacturers to become exporters, reducing its dependence on energy and minerals. There is a fair amount of industry left in Russia that has prospects of competing on global markets, if given a chance (see article). Potential strengths include aircraft, helicopters, engines, turbines, industrial gear such as pumps and compressors and, inevitably, military equipment. With fresh investment and good management—and the competitive shock of WTO entry—Russian industry’s productivity could improve sharply.

There are signs of this happening. Some of Russia’s energy and metals oligarchs, such as Oleg Deripaska and Alexei Mordashov, are also putting money into reviving manufacturing. Foreign carmakers are pouring into Russia, building new factories and refurbishing old ones, as demand for cars booms.

However, the motive for foreign firms has typically been to get around tariff walls and Russia’s nightmarish (and corrupt) customs-clearance procedures, rather than to make the country part of their global supply chains. Russia gets much less foreign investment than many other big emerging markets. It is an especially bad place to do business, with its suffocating bureaucracy, unreliable courts (just ask BP) and organised crime. Mr Putin has kept promising to fix this, most recently setting a target of moving the country from 120th to 50th place in the World Bank’s “Doing Business” league table. Skolkovo, an attempt to build a Silicon Valley-style cluster of technology firms on Moscow’s outskirts, will be exempt from some of the country’s stifling regulations (see article).

But the state has yet to shake off its instincts to dominate industry and protect it from competition (and often loot the proceeds). Although a wave of part-privatisation is promised, the government has been going in the opposite direction, buying out Western shareholders in some Russian aerospace firms. Instead of seeing WTO membership as a way to force Russian industry to compete, the country’s lawmakers so far seem to be seeking to frustrate the club’s free-trade rules: last month they backed a plan to introduce a “recycling levy” which, in practice, would fall on imported cars but not Russian ones.

Watching these machinations, pessimists fear that WTO membership will mean rent-seeking bureaucrats merely rejigging their bad habits, leaving Russia’s crony-capitalism intact. The more optimistic view is that it will constrain the worst instincts of Putinists more than they realise. It is a first step towards a rules-based system. The club’s impact will not be perfect, any more than it has been for China. But it does point to the path Russia must take if it is to prosper.